American Health Care Act: GOP Repeal And Replace Proposal

After many years of promising a full replacement bill, and after months of haggling behind closed doors, the Republicans in Congress have submitted the first draft of their legislative language to repeal and replace the Affordable Care Act (Obamacare).

Speaker of the House Paul Ryan and others released the language of the bill earlier this afternoon, and the full bill can be read here. The bill is massive in scope, and has tremendous repercussions for the health care marketplace, if it is passed as currently written.

Here are just a few of the key provisions of the bill:

The individual mandate and employer mandate are repealed in its entirely, and are retroactively repealed for 2016. In its place will be a continuous coverage rule; this stipulates that anyone who fails to maintain health insurance coverage, and has a gap of greater than two months, will pay a 30% penalty when and if they resume their health care coverage. This was a major request by insurance companies, who wanted to make sure people could not game the system. However, there is an open question whether this new rule will be as effective as the individual mandate in forcing people into the health care market.

The bill does NOT repeal the Cadillac tax, one of the more hated tax provisions of the original Obamacare bill. However, other taxes are eliminated (some in later years), such as taxes on tanning booths, prescription drugs, small business tax, and taxes on net investment income.

The bill defunds Planned Parenthood. Additionally, no tax credits can be used to purchase any abortion insurance services.

Medicaid expansion will continue until 2020, at which point the program moves to a per enrollee formula. At that point, block grants would replace the current funding mechanism. The grants are slated to grow at the rate of health inflation, not standard CPI. This is an important caveat, as the rate of inflation is higher, and thus, this would likely be more costly in the long run.

The minimum benefit regulation is repealed starting in 2020. However, the bill does retain many of the minimum basic services guaranteed under the ACA. It does repeal the actuarial value requirements for cost sharing.

In lieu of the current subsidy regimen, there will be refundable taxable credits available to all persons who do not have access to other insurance markets (whether that be employer supplied insurance, Medicaid, VA, or Medicare). The tax credits will range from $2,000-$4,000 per person, and are age adjusted (instead of income adjusted). Credits phase out for higher income people ($75,000 for individuals, $150,000 for couples). This income credit will grow by CPI + 1% every year, with a family maximum of $14,000. In short, these credits will be less than is currently provided through subsidies, and in general, will be less beneficial to the poor and sick than the current system is.

Out of pocket costs are still capped.

Starting in 2019, the bill alters the age rating standards. Insurers can charge older patients up to 5 times as much as they charge young people (the current ratio is 3:1). This will decrease costs for the young, but ultimately increase costs for the older generation.

FSA and HSA will be expanded, allowing more money to be saved tax free.

There are many other provisions that the legislation refers to, but this gives a brief picture of the plan Republicans are currently proposing. In short, this is a plan that would provide more personal choice in types of insurance, but would provide less government assistance to obtain those services.

The tax credit scheme here will benefit the rich, the young, and the healthy, but will be more costly for the poor, the sick and the elderly. That is an obvious intentional trade-off made here, as the change in the age rating standards show.

Furthermore, some of the decisions here significantly limit the potential cost reductions going forward. For example, tying future Medicaid block grants to health care inflation may be sensible to maintain coverage, but will tremendously increase the long-term cost of the program. The cuts that do occur in this bill occur primarily after 2020, while much of the Obamacare funding remains at the current rates that exist today. So there will be little cost savings in any significant amount over the first few years of this replacement.

Politically, there are several landmines ahead. First and foremost is that this bill will almost certainly cover a few million fewer people than Obamacare currently does. Between the change in the Medicaid expansion program, along with decreased federal support for insurance premiums, the overall effect will be the rate of the uninsured is almost guaranteed to go up. Additionally, removal of the individual mandate likely destabilizes the already weak Obamacare exchanges, which may hasten their downfall.

Second, as stated above, some of the cost decisions lead to predictable trade offs. By increasing funding for Medicaid, the program is going to cost more. By increasing the tax credits from the level that Rep. Price originally proposed in his bill several years ago, there will be significant increased federal expenditures. These decision ultimately are going to lead to less savings overall once the CBO scores the bill. The question then becomes, is that level of cost savings worth the trade-off of millions more people becoming uninsured? There may be a logical argument for it, but the GOP, and especially President Trump, are going to have to be ready to make that argument to the American people. Already, small government conservatives like Sen. Rand Paul and Rep. Justin Amash are calling this ‘Obamacare 2.0’, which clearly draws a line in the sand where they think this debate now stands.

My biggest complaint about this bill is that there really is no governing philosophy in its writing. It neither pleases conservatives nor moderates. It makes half measures to increasing patient choice, but retains taxes such as the Cadillac tax, while at the same time maintaining the employer based health insurance system. It doesn’t maximize Federal support for the poor, nor does it full adopt the free market. It surely does some good things, such as expanding HSA/FSA and moving to a refundable tax credit system, but never fully seems ready to jump in with both feet in a full free market model of national health care. The muddle created by the GOP here makes it very difficult to make a sound, concise argument regarding specifically what their goal is. The President, Speaker Ryan, and the rest of Congress are likely to have a tough road ahead to make this sale to the American people.